COVID-19 Commercial & Retail Leases: Out with the Old and In with the New

The Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 (Updated Regulations) commenced 24 October 2020 with the effect of repealing and amending the Retail and Other Commercial Leases (COVID 19 – Regulation 2020) (Regulations).

In light of the ongoing COVID-19 pandemic, extensions to the JobKeeper program and impending expiry of the Regulations, it came as no surprise when the NSW Government made an announcement to extend the prescribed period (which commenced on 24 April 2020) to 31 December 2020 (Prescribed Period).

The NSW Government has sought to settle ongoing debate concerning the interpretation of the Regulations. A summary of the Updated Regulations is set out below.

1. Eligibility

In order to remain eligible for rent relief under the Updated Regulations, a ‘impacted lessee’ is required to re-establish its eligibility as an ‘impacted lessee’ by producing evidence to the lessor that it qualifies for JobKeeper 2.0.

We note however the eligibility requirements between JobKeeper and JobKeeper 2.0 remain unchanged.

2. Ongoing Negotiations

The Updated Regulations entitles either party to an impacted lease to make a further request to the other party to participate in renegotiations of the rent payable under, and other terms of, the impacted lease.

A request for renegotiation must be made during the Prescribed Period, not be in respect of any period where rent relief has already been provided and must commence within 14 days of receiving the request from the other party (unless otherwise agreed).

Renegotiations that commence under the Updated Regulations but not finished before the expiry of the Prescribed Period, may nevertheless be continued and concluded.

3. Prescribed Action

The definition of ‘prescribed action’ and functionality of the relevant section of the Updated Regulations remains unchanged. However, for the purpose of removing apparent ambiguity in the Regulations, the following clarifications have been made:

• a lessor is only restricted from taking prescribed actions where its lessee is an impacted lessee (i.e. the lessee qualifies for JobKeeper, has a turnover of less than $50M and is not part of a group of companies whose turnover exceeds $50M);

• any prescribed action to be taken by a lessor against an ‘impacted lessee’ must be delayed until expiry of the Prescribed Period or otherwise where parties first attempt mediation; and

• there is nothing that prohibits lessors from taking prescribed action on grounds not related to the economic impacts of COVID-19.

It is important to reinforce that despite the above amendments, the Updated Regulations must still be applied by parties having regard to the economic impacts of COVID-19 and the leasing principles set out in the National Code of Conduct.

Given the Updated Regulations expire 25 April 2021 it is conceivable that further amendments may be introduced as the COVID-19 environment continues to affect the retail and commercial businesses.

Henry William Lawyers can assist with any related enquires. Feel free to contact our people:

Ron Zucker +61 410 590 111

Vincent Tripodina +61 408 228 108

Chelsea Woodward +61 404 065 899

Anna Polhill +61 431 174 352